Costly proposition

New Delhi, March 6: Gail (India) Ltd will require a war chest of Rs 5,285 crore to set up the Assam gas cracker unit, which would enable it to rake in a pre-tax return of 14.33 per cent, according to the detailed feasibility report prepared by the company.

Sources say Gail has estimated that apart from various excise and sales tax exemptions, the government would have to shell out Rs 1,100 crore to Rs 1,600 crore as subsidy. This will depend on whether the loan required for the project is picked up at an 8 per cent or a 10 per cent rate of interest.

The proposal will have to be cleared by the cabinet before the project can take off. However, a senior Gail official told The Telegraph that the subsidy would have to be paid over five years. This would make it more feasible for the government to undertake the project.

Gail is looking at a debt-equity ratio of 50:50 for the project. It is expecting to raise a loan from the oil industry development board at a low interest rate of 7 to 8 per cent, which would considerably ease the subsidy burden for the government.

Gail is seeking a central excise waiver of Rs 170 crore a year on the finished products and Rs 12 crore for the raw materials to be used in the cracker and customs duty exemption for the purchase of equipment for setting up the plant.

It is also seeking tax concessions from the state government. These include a sales tax exemption of Rs 50 crore a year on the finished products and a Rs 15 crore per year sales waiver on the raw materials.

Gail officials feel that the central and state governments are not getting these taxes in any case and the only direct outgo from the government coffers would be the subsidy element. In fact, the Northeast region is in any case eligible for several of these tax concessions as part of the existing policy to promote industrialisation.

Customs duty exemptions for importing equipment have also been extended in the past to set up new projects such as the Reliance refinery in Jamnagar, a senior Gail official said. The gas cracker project, proposed to come up at Lepetkata in the Dibrugarh district, will use both natural gas and naphtha as raw materials.